Asia
China’s stock markets have had a grim year and are some of the worst performing in the world in 2018. The early move by the Shanghai Composite Index above 3,500 points was shortlived and it never really recovered from the February sell-off. Once the index dropped below 3,000 points and the trade war got into its stride, continued weakness started to look inevitable. Even the 90-day trade truce agreed around the time of the G20 summit failed to provide much support to the index, which is now around a quarter lower than the start of the year.
Still, market expectations for 2019 are for a revaluation of emerging market shares as the dollar loses ground. China is also expected to cut taxes sharply and ease monetary policy as policymakers look to keep the economy on an even keel.
Hong Kong has been highly exposed this year for multiple reasons: the Hang Seng’s tech bias, exposure to a bearish China and the global sell-off in developed equity markets. Having hit a record high this year above 33,000 points, the Hang Seng is now around 25,000 points. Hong Kong markets are closed on Tuesday and Wednesday.
Japan’s stock market has not been immune to global weakness this year, dropping around 14% in the year to date, in line with losses suffered by the S&P 500. While the trend for Japanese yen against the dollar has been weaker since March, which usually supports Japanese equities, they have not been given the currency boost seen during 2016 and 2017 when the dollar surged. The exchange rate started the year at 113 yen to the dollar and is now ended around 110/111 after recent dollar weakness. The US dollar is expected to struggle into 2019, which will provide a further headwind for Japanese shares.
Japan’s $900 billion budget has been approved by its parliament, including record defence spending, as Japan keeps a watchful eye on China. The government spending is designed to cushion the blow from a sales tax due to kick in during the autumn.
The minutes from the latest Bank of Japan meeting, in which interest rates were held, are due midweek – along with a speech from Governor Kuroda in Keidanren. Japan’s Tokyo Stock Exchange is closed on Monday, December 24 and December 31.
China’s Shanghai Stock Exchange is closed on Monday, December 31.
Europe
Stocks markets in Europe have tracked global weakness closely this year. Social unrest in France, Brexit, problems with European banks such as Deutsche Bank (DBK) have weakened the case for EU shares after a strong few years.
Germany’s DAX is off nearly 18% so far this year and is off nearly 300 points in the last full trading week of the year at 10,500.
The UK’s FTSE 100 has shed around 1,000 points this year, a loss of around 13%. Hopes of a Santa Rally have all but evaporated as political uncertainty continues into the New Year. Usually, sustained pressure of the pound would have supported the FTSE 100, which has been the case since the Brexit vote in 2016. But sterling has fallen from $1.43 to around $1.20 now after a winter of political high drama, and the currency boost appears to be fading for the FTSE 100.
UK retailers have borne the brunt of fears over the economy as Brexit approaches. Retail sales for November were better than expected ad Black Friday boosted retailers. But this week’s share price crash by Asos (ASC) has put traders on notice that this year’s festive updates from listed retailers may provide some nasty surprises. Next (NXT) is the first of the major firms to report, on January 3.
Next week markets in London, France and Germany are closed on Tuesday and Wednesday.
North America
The New York Stock Exchange is closed on Tuesday for Christmas Day, while the Toronto Stock Exchange is closed Tuesday and Wednesday. US traders would probably welcome an extended European-style extended break, given the levels of volatility seen in recent days. The Dow dropped nearly 500 points yesterday to close below 23,000, having started the week around 24,500. The index has swung around sharply this year. Monday’s trading session is truncated ahead of Christmas Day, but trading resumes on Wednesday.
After a push towards 27,000 points in early October, the Dow has been under sustained pressure, with any move up to 26,000 reversing quickly. This week’s Fed meeting was the pivot point for the week’s sentiment. Jerome Powell and colleagues resisted the political pressure heaped on them by raising rates for the fourth time this year. But the market failed to receive any further encouragement from the Fed’s uncertain outlook for 2019’s rate rises, with expectations growing for a US recession either next year or in 2020.
The next earnings season could be more problematic than previous ones, especially in the tech sector, where share prices have come under pressure in recent months.
The third reading of Q3 economic growth is due today as well as durable goods orders. The PCE core number for November is expected to show a rise to 1.9%, just below the Fed’s target. Canada’s GDP number for October is expected to show a rebound from September’s contraction and a rise to 2.2% on a year on year basis.
Looking ahead to next week, the US consumer confidence index for December is due on Thursday, as well as new home sales and weekly jobless numbers.
